Extended Expiration / Run-off Clause
The extended expiration or run-off clause ensures that losses arising from events occurring during the treaty period can still be settled under the treaty after its expiry.
- Clause type
- Termination
- Origin/Market
- Reinsurance market
- Favours
- Insured
- Negotiability
- Market standard
Purpose
Reinsurance treaties typically run for one year, yet losses from events occurring within that year are sometimes only finally settled months or years later. The run-off clause makes clear that such late-developing losses continue to be handled under the terms of the original treaty, even after it has expired or been replaced by a successor treaty.
Effect and limits
The clause applies only to losses from events occurring within the treaty period (“losses occurring” basis); it does not extend the period of cover itself, only the settlement window. Its significance is smaller under claims-made treaties, where the claim must already be notified during the period.
Negotiation and practice
Together with the sunset clause, a deadline is usually agreed after which late-developing losses are no longer accepted – the two clauses sit in tension between legal certainty for the reinsurer and full protection for the cedent.